Although the Japanese government would like to regulate the yen exchange rate with the help of foreign exchange interventions, the USDJPY trend is determined by the monetary policy of central banks. Let us discuss the Forex outlook and make up a trading plan.
Weekly yen fundamental forecast
Haruhiko Kuroda seems to follow the recommendation of the first president of the European Central Bank. Wim Duisenberg resisted calls to adjust interest rates two decades ago. At the time, Duisenberg was to follow the Federal Reserve and ease monetary policy. Now, the BoJ goes against the rest of the world. While most central banks tighten their monetary policies, the Japanese regulator maintained its interest rate at -0.1% and continued its yield control policy. This was in line with 49 Reuters experts, supporting the rise in the USDJPY.
With consumer prices rising in Tokyo to 3.4% in October, the highest since 1989, one could think about normalizing monetary policy. In fact, the Bank of Japan does not expect inflation to return to the target on a sustainable basis. The regulator sees it at 2.9% by March 2023 but predicts a decline to 1.6% by March 2024.
Dynamics of Japan’s inflation
Source: Bloomberg.
As for the rates, the most accurate answer to this question was given by Prime Minister Fumio Kishida. According to him, the BoJ should take into account not only the exchange rate but also the burden of borrowing costs on the economy and the population. Obviously, Japan, having such a huge debt, simply cannot afford to tighten its monetary policy. Is it necessary at all?
Why would Kuroda want to repeat some inglorious episodes from BOJ history and begin withdrawing stimulus just as the global economy is weakening? His predecessors lifted off from near zero in 2000 and 2006, only to retreat in the world downdrafts that followed. So, the regulator could just do nothing and watch what happens with the rest of the world.
That is what Haruhiko Kuroda seems to be willing to do. He claims that the borrowing costs will hardly be raised shortly. The USDJPY hit 148. The yield ceiling on 10-year Japanese bonds weakens the yen, although the BoJ governor rejects this view. The BOJ offered to buy 350 billion yen of bonds with 10- and 25-year maturities, up from the 250 billion yen it had planned. That is why yields froze at the same level.
Therefore, the USDJPY trend depends on the USA, namely, on the changes in the Treasury yields. The latter will be affected by the FOMC meeting and the US jobs report for October. Tokyo’s Forex interventions seem to have scared investors with sharp changes in the currency rates. After two forex interventions, speculators cut the yen’s net shorts to yearly lows.
Weekly USDJPY trading plan
To sum up, the dollar/yen trend depends on the Fed and the US domestic data. I don’t think Jerome Powell should suggest a dovish shift. Furthermore, a strong US jobs report will push up the USDJPY. I recommend buying the dollar versus the yen on the breakout of the resistances at 147.8 and 148.3.
Price chart of USDJPY in real time mode
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